2017 Integrated Resource Plan Update

Mike SheehanSenior Director of Fuels and Resource Planning

2017 IRP WorkshopNovember 2, 2016 

Integrated Resource Planning Process

• Inform customers, regulators and public stakeholders• Seek both customers and stakeholder feedback• Discussion is focused on the near‐term action items

1

2014         2016        2018         2020    2022      2024       2026      2028      2030

Reference Case Plan

Battery Storage

In Home Technologies

20% Renewables 30% Renewables

SMR Technology

Flexible Generation

Higher Demand  Response  Targets Higher DSM Targets

Reference Case Plan

Reference Case Plan

Reference Case Plan

Updates Since the 2014 IRP Report

Elimination of Coal on Sundt Unit 4 in 2015

2

30% by 2030

Acquisition of Gila River Unit 3

Pinal Central – Tortolita 500 kV Upgrade

Targeting 30% Renewables by 2030

Unisource Renewable Energy Portfolio

3

AmonixDual Axis Concentrated 

PV 1.2 MW

AvalonFixed PV28.3 MW

CogenraSAT Concentrated 

Thermal PV1.1 MW

E. ON.Single Axis Tracking PV 

4.8 MW

Fort HuachucaFixed PV13.6 MW

GatoMontes SolarFixed PV 4.9 MW

Macho SpringsWind

50.4 MW

NRG Avra ValleyFixed PV25 MW

Picture Rocks SolarFixed PV20 MW

Solon Prairie FireFixed PV4.0 MW

SpringervilleFixed PV5.1 MW

Areva SolarConcentrated Solar Thermal

5.0 MW

Valencia SolarSingle Axis Tracking 

PV 10 MW

Solon UASTP 1Single Axis Tracking PV

1.3 MW500 kW of Lithium‐Ion Battery Storage

Solon UASP 3Fixed PV4.0 MW

White Mountain Solar SAT Thermal PV 

8.3 MW

Red Horse SolarFixed PV30 MW

Kingman Wind & SolarWind & Fixed PV

10.2 MW

Black Mountain SolarFixed PV8.9 MW

La SenitaSingle Axis PV0.98 MW

New Interactive Map ‐ https://www.tep.com/renewable‐resources‐2/

4

Planning to Meet Future Operational

Requirements

Future Resource Planning Requirements

The Problem

Future Integration ChallengesSolving the “California Duck Load Curve”

Potential Portfolio of Solutions• Renewable Forecasting

• Energy Storage Technologies

• Fast Ramping Natural Gas Resources

• Regional Transmission and Imbalance Markets

• Natural Gas Storage

• Renewable Portfolio Diversification

• Demand Response Programs

• Improvements in Rate Design5

 (300.0)

 200.0

 700.0

 1,200.0

 1,700.0

 2,200.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hou

rly Unit D

ispa

tch, M

W

Coal Natural Gas Wind Market Purchases Over Generation

1 – Downward Ramping2 – Minimum Generation3 – Upward Ramping4 – Peak Shift5 – Over‐Generation

Hourly Dispatch

5

1

2

4

3

Real‐Time & Day Ahead Renewable Forecasts

6

TEP Energy Storage Projects

• 2 Projects – Lithium‐Ion Type Batteries• NextEra Energy Resources

– 10 MW lithium nickel‐manganese‐cobalt battery system

– DeMoss Petrie Substation– Operational by the end of 2016

• E.On Climate & Renewables– 10 MW lithium titanate oxide 

battery storage– Combined with 2 MW Solar PV– University of Arizona Tech Park– 2Q of 2017

• Frequency Regulation

7

NextEra Energy Resources 2015The 10 MW energy storage project to be installed near Interstate 10 and West Grant Road could be similar to this NextEra Energy Frontier Battery 

Storage Project in Shabbona, Ill.

• Historically found in marine and industrial applications.  Today, under a power generation application, there is real potential to help solve renewable integration issues

• Fast start and ramp times (Start in 2 minutes and at full load in 5 minutes) 

• Small modular footprint (smart grid paradigm) and reliability spread across multiple units. 

• Low gas pressure requirement and low water consumption

• Potential EIM participation value

Flexible Generation Resources

8

Reciprocating Engines (RICE)

Regional Energy Imbalance Markets

9

• Working to determine economic benefits of potential alternatives and weigh opportunities for market participation 

• Evaluate operational benefits especially as they relate to renewable integration and system regulation 

• Consider governance structure and implications for system reliability/resource control

• Transmission synergies and Renewable diversity

CALISO EIM Mid‐West‐Mid‐Continent RTO

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Desert SouthwestRegional Market Update

1643 MW

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Desert Southwest Coal Resource Update

Moenkopi

Tucson

Springerville

South

Vail

Tortolita

Palo Verde

Cholla

Saguaro

San Juan

Four Corners

McKinley

New Mexico

Navajo

TEP 345 kV

Coronado

Valencia

Sundt

Douglas

Apache

McKinleyMine

Kayenta

San JuanMine

Lee RanchEl Segundo

350 MW125 MW

1600 MW

765 MW

1025 MW

2250 MW 2100 MW

2013 - 10,100 MW

2017 - 7,210 MW28% Reduction

2025 – 5,950 MW42% Reduction

2032 – 2,000 MW80% Reduction

Committed Coal Retirements in Progress

Escalante247 MW

Predicted Retirementsby 2032

12

Merchant Generation Facilities

Moenkopi

Tucson

Springerville

Bowie(Proposed)

South

Vail

Tortolita

Cholla

Saguaro

San Juan

Four Corners

McKinley

New Mexico

Harquahala

Navajo

1250 MW

TEP 345 kV

Coronado

Gila River

Griffith

Mesquite

SouthPoint508 MW

2200 MW

570 MW

1092 MW

550 MW

570 MWArlington Valley

Gila River Unit 3 TEP and UNSE

Recent Merchant Plant Acquisitions

SouthpointNV Energy

Gila River Unit 4 SRP

Approximately 3,500 MW of Merchant Natural Gas Combined

Cycle Generation Available

CAISO Spring 2016 Price Curves($/MWh)

Historical Hourly Price Curves($/MWh)

Solar Penetration Impacts on Hourly Wholesale Power Prices

13

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

1 3 5 7 9 11 13 15 17 19 21 23$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

1 3 5 7 9 11 13 15 17 19 21 23

Prices Collapse

8AM to 2PMDue to Solar

Surplus

Prices Increases

4PM to 10PMDue to Fast

Ramping Requirements

Typical Spring Day Typical Spring Day

Wholesale power prices are in process of undergoing a fundamental hourly price shift to accommodate the integration of solar resources

Market Prices Aligned with Customer Demand

14

Electric Vehicles (EVs)

Electric Vehicles (EVs)

Tesla Model 3: Does it signal an Electric Car Revolution?Cost ‐ The base version of the Model 3 will be produced at $35,000.

Performance ‐ 0‐60 in less than 6 seconds in the base version.

Range ‐ The base model with a 50‐60 kWh battery ‐ 215 miles per charge.

Charging ‐ Supercharging to near full capacity in 40 minutes compared to multiple hours with other EVs. Regular charging in 5‐6 hours from a home charger.

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Note: Data based on Wood‐MacKenzie Electric Vehicle Case Study and www.teslamotors.com

16

Jeffrey Pyun Department of Chemistry & Biochemistry, University of Arizona Department of Chemical & Biological Engineering Seoul National University, World Class University Program

Future EV Charging Profiles

• Workplace incentives to charge during the day to utilize solar generation resources.

• Maximizes carbon reduction in the transportation sector while reducing the “duck‐curve” effects in power generation sector.

Today’s EV Charging Profile

• Current battery technology has 85% of EV owners charging overnight at home.

• Results in off‐peak reliance of predominately coal, natural gas and wind generation resources.

EV Charging Infrastructure and Incentives

17

0%

5%

10%

15%

20%

25%

6:00 10:00 14:00 18:00 22:00 2:00Source: Wood Mackenzie; Idaho National Laboratory

0%

5%

10%

15%

20%

25%

30%

6:00 10:00 14:00 18:00 22:00 2:00

Discounted Charging Rates for EV Customers

9AM to 3PM

Utility Programs to

Curtail Charging

Loads3PM to 9PM

EV Charging Peak around

2 AM

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Cost of Energy Resources

Levelized Cost of Energy and Storage Technologies

• Levelized Cost of Energy – https://www.lazard.com/perspective/levelized‐cost‐of‐energy‐analysis‐90/

• Levelized Cost of Storage Technologies– https://www.lazard.com/perspective/levelized‐cost‐of‐storage‐analysis‐10/

19

2016 Levelized Cost of Energy ($/MWh)

20

$279 

$222 

$161 $145 

$106 

$82 $70 

$54  $49 

$36  $‐

 $50

 $100

 $150

 $200

 $250

 $300

FrameCombustionTurbine

AeroderivitiveCombustionTurbine

Solar Thermal‐ Six HourStorage

Small ModularReactor

Natural GasReciprocating

Engines

Natural GasCombinedCycle

Solar PV ‐Fixed Tilt

Solar PV ‐Tracking

WindResources

EnergyEfficency

$/MWh

$50 (a)

(b)

Assumptions:The LCOE analysis assumes 43.5% debt at 5.2% interest rate and 56.5% equity at 10% cost for both conventional and renewable generation technologies based on 2016 in‐service date.  A levelized natural gas price of $3.77 per MMBtu is assumed for all applicable natural gas technologies. All solar resources reflect the investment tax credit changes associated with the December 2015 Consolidated Appropriations Act. Wind resources represent on‐shore technologies and assume all production tax credits based on the December 2015 Consolidated Appropriations Act. Analysis does not reflect potential impact of evolving regulations/rules promulgated pursuant to the EPA’s Clean Power Plan. The LCOE reflects interconnected bus bar costs and excludes reliability–related costs (i.e., system integration and backup capacity costs associated with renewables) and potential social and environmental externality costs. Energy efficiency notes (a) Estimates per National Action Plan for Energy Efficiency; (b) Costs based on Arizona total and program administrator cost of saved electricity for various initiatives in 2012 dollars.  Source: Lawrence Berkeley National Laboratory (LBNL) Demand‐Side Management (DSM) Program Database for the period 2009 to 2013.

TEP’s Existing Coal Resources

$50 – $80 MWh

Gila River Unit 3

$55 MWh

Renewable ResourcesTechnology Innovation Curves and Renewable Tax Credits

21

$70

$67$64

$62$63

$65

$74

$55

$60

$65

$70

$75

0

500

1000

1500

2000

2016 2017 2018 2019 2020 2021 2022

LCOE, $/M

Wh

Installed Co

st, $/kW

Solar PV ‐ Fixed Tilt (20 MW)

$/MWh $/KW

$54 $51 $49 $49$51 $54

$61

‐$4$6$16$26$36$46$56$66$76

0

500

1000

1500

2000

2016 2017 2018 2019 2020 2021 2022

LCOE, $/M

Wh

Installed Co

st, $/kW

Solar SAT ‐ Tracking (20 MW)

$/MWh $/KW

$49 $54 $59$64

$75 $75 $75

‐$4$6$16$26$36$46$56$66$76

$0

$500

$1,000

$1,500

$2,000

2016 2017 2018 2019 2020 2021 2022

LCOE, $/M

Wh

Installed Co

st, $/kW

Wind (50 MW)

$/MWh $/KW

$161 $157 $153 $151 $158 $165$188

$0

$50

$100

$150

$200

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2016 2017 2018 2019 2020 2021 2022

LCOE, $/M

Wh

Installed Co

st, $/kW

Solar Thermal ‐ 6 Hour Storage (100 MW)

$/MWh $/KW

Note: Utility projects which have commenced construction before December 31, 2021 may still qualify for the 30, 26 or 22 percent ITC if they are placed in service before December 31, 2023. The Treasury and IRS are currently drafting guidance which will inform solar developers of which percentage of ITC they will qualify for depending on when they started their project

Conventional Technologies

22

Plant Construction Costs UnitsFrame 

Combustion Turbine

AeroderivativeCombustion Turbine

Natural Gas Reciprocating 

Engines

Small Modular Reactor (SMR)

Natural Gas Combined 

Cycle (NGCC)

Project Lead Time   Years  4 4 2 12 4Installation Years   First Year Available  2020 2020 2018 2028 2020Peak Capacity , MW  MW  75 45 20 300 550Plant Construction Cost   2016 $/kW  $770 $1,200 $1,070 $6,000 $1,135EHV/Interconnection Cost   2016 $/kW  $30 $50 $30 $400 $165Total Construction Cost   2016 $/kW  $800 $1,250 $1,200 $6,400 $1,300

Operating Characteristics Fixed O&M   2016 $/kW‐Yr $13.25 $12.50  $17.50 $29.30 $16.50Variable O&M   2016 $/MWh  $3.75 $3.50  $12.50 $5.00 $2.00Gas Transportation 2016 $/kW‐Yr $16.80 $16.80  $16.80 ‐ $16.80Annual Heat Rate   Btu/kWh  10,500 9,800 8,000 10,400 7,200Typical Capacity Factor   Annual %  8% 15% 45% 85% 50%Expected Annual Output   GWh  53 59 79 2,234 2,409Fuel Source  Fuel Source Natural Gas Natural Gas Natural Gas Uranium Natural GasUnit Fuel Cost  $/mmBtu $3.77 $3.77  $3.77 $0.90 $3.77Net Coincident Peak  NCP%  100% 100% 100% 100% 100%Water Usage  Gal/MWh  150 150 50 800 350

Levelized Cost of Energy  $/MWh  $279 $222  $106 $145  $82

Renewable Technologies

Plant Construction Costs($2016)

UnitsSolar Thermal 6 Hour Storage(100 MW)

Solar Fixed PV(20 MW)

Solar Single Axis Tracking(20 MW)

Wind Resources(50 MW)

Project Lead Time   Years  4 2 2 2Installation Years   First Year Available  2020 2018 2018 2018Peak Capacity   MW  100 20 20 50Plant Construction Cost   2016 $/kW  $9,800 $1,450 $1,700 $1,250EHV/Interconnection Cost   2016 $/kW  200 50 50 200Total Construction Cost   2016 $/kW  $10,000 $1,500 $1,750 $1,450

Operating Characteristics Fixed O&M   2016 $/kW‐Yr $80.00 $10.00 $13.00 $40.00Typical Capacity Factor   Annual %  50% 25% 32% 33%Expected Annual Output   GWh  438 44 56 145Net Coincident Peak  NCP%  85% 33% 51% 13%Water Usage  Gal/MWh  800 0 0 0ITC   Percent  30% 30% 30% ‐PTC  $/MWh ‐ ‐ ‐ $23.00

Levelized Cost of Energy  $/MWh  $161  $70 $54  $49 

23

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Future Natural GasInfrastructure Requirements

Future Natural Gas Infrastructure Requirements

 ‐

 1,000

 2,000

 3,000

 4,000

 5,000

 6,000

 7,000

 8,000

 9,000

 10,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24Mcf

2032 Daily Natural Gas Usage (Mcf) 

TEP

UNSE

 ‐

 1,000

 2,000

 3,000

 4,000

 5,000

 6,000

 7,000

 8,000

 9,000

 10,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Mcf

2016 Daily Natural Gas Usage (Mcf) 

TEP

UNSE

Hourly Gas Usage Hourly Gas Usage

Peak Hour Usage      3,400  McfMax Ramp Up 2,500  McfMax Ramp Down    (1,400) Mcf

Peak Hour Usage      9,100  McfMax Ramp Up 4,300  McfMax Ramp Down    (3,900) Mcf

Average Summer Daily Usage 75,000 Mcf  Average Summer Daily Usage 175,000 Mcf 

45

TEP’s 2016 Resource PortfolioCoal Resources and

10% Renewables

Future Coal Retirements

andHeavy SolarRenewable

Portfolio

Kinder Morgan Proposed Gas Storage Project

26

Potential Natural Gas Storage Project in Arizona

• Improve natural gas delivery reliability– Provides firm, real‐time, in‐market gas supply

• Enhance generation operations– Matches flexible fuel with flexible generation – Complements renewable portfolio and could facilitate Energy 

Imbalance Market participation– Could provide black‐start capability for RICE

• Cost savings for retail utility customers– Defer need to secure costly long‐haul pipeline capacity on 

behalf of retail utility customers– Avoids pipeline penalties– Allows more ratable transportation

28

Renewable PortfolioDiversification

Renewable Portfolio Diversification

29

 ‐

 1,000

 2,000

 3,000

 4,000

 5,000

 6,000

 7,000

 8,000

 9,000

 10,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Mcf

2032 Heavy Solar Portfolio

 ‐

 1,000

 2,000

 3,000

 4,000

 5,000

 6,000

 7,000

 8,000

 9,000

 10,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24Mcf

2032 Balanced Solar / Wind Portfolio

Hourly Gas Usage Hourly Gas Usage

Peak Hour Usage      8,800  McfMax Ramp Up 3,400  McfMax Ramp Down    (2,800) Mcf

Peak Hour Usage      9,100  McfMax Ramp Up 4,300  McfMax Ramp Down    (3,900) Mcf

Overall Decrease in Ramp Up and

Ramp Down During Typical Day

80% Solar and 20% Wind 50% Solar and 50% Wind

Future Regional Transmission Projects 

Tucson

Springerville

Greenlee

South

Tortolita

Palo Verde

San Juan

Four Corners

PinalCentral

Navajo

Kyrene

Valencia

Jojoba

Willow

Sunzia East

SouthlineTransmission

Project

SunziaTransmission

Project

Westwing

Western Spirit

Project

Coal Generation

Natural Gas Generation

Wind Generation

Solar Generation

Sunzia Project

Southline Project

Western Spirit Project

Future EHV Upgrades

Merchant Generation at

Palo Verde

46

Migrating Towards A Sustainable EnergyBusiness Model

Conventional Energy System Transition to ‘Sustainable Energy System’

Transition to 'Load follows Generation'

Sustainable Energy Sources

'Generation follows Load'

Primarily Fossil Energy Sources

Past Future

Increased Customer ValueVolumetric Sales

31

Tucson Electric Power Resource Diversification Plan

32

Building a Sustainable, Cost‐Effective Resource Portfolio

2014 Portfolio 2023 Portfolio 2032 Portfolio